Markets Today: Stocks Retreat on Conflict in the Middle East

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are down -0.71%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are down -0.88%.

Stock index futures this morning are moderately lower as ramped-up geopolitical concerns sparked risk-off sentiment in asset markets after the militant group Hamas attacked Israel over the weekend, leaving more than 1,100 dead.  European government bond yields are lower as investors flock to the safety of government debt, although trading in the U.S. Treasury market is closed today for the Columbus Day holiday.

The attack by Hamas on Israel sent crude oil prices soaring by more than +3% on concern the conflict could widen and threaten crude supplies from the Middle East.  The U.S. sent a group of warships to the eastern Mediterranean.  The Wall Street Journal reported that Iranian security officials helped Hamas plan Saturday’s surprise attack. 

The markets are discounting a 22% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 40% chance for that +25 bp rate hike at the following meeting that ends on December 13.  The markets are then expecting the FOMC to begin cutting rates in the second half of 2024 in response to an expected slowdown in the U.S. economy.

European bond yields are moving lower.  The 10-year T-note yield is not trading today with the U.S. Treasury market closed for the Columbus Day holiday.  The 10-year German bund yield fell to a 1-week low of 2.828% and is down -1.7 bp at 2.867%.  The 10-year UK gilt yield is down -0.5 bp at 4.568%.  

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.76%.  China’s Shanghai Composite Index closed down -0.44%.  Japan’s Nikkei 225 today was closed for a holiday.

The Euro Stoxx 50 today is moderately lower on increased geopolitical concerns after the surprise attack by the militant group Hamas on Israel over the weekend.  Losses in travel and leisure stocks led the overall market lower as global airlines stopped flights to Israel. However, stocks recovered from their worst levels on a rally in defense stocks, with Saab, Rheinmetall, and Leonardo up at least 5%.  Also, energy stocks rose, with crude prices up more than +4%.  The global geopolitical tensions and weakness in stocks sparked a rally in European government bonds on a flight to safety, as the 10-year German bund yield fell to a 1-week low. 

Today’s Eurozone economic news was mixed for stocks.  On the negative side, German Aug industrial production fell -0.2% m/m, slightly weaker than expectations of -0.1% m/m.  Conversely, Eurozone Oct Sentix investor confidence fell -0.4 to -21.9, a smaller decline than expectations of -24.0.  

ECB Vice President Guindos said the ECB must stay vigilant on inflation, and interest rates are likely to stay at their current levels for some time "due to the evolution of oil prices, the depreciation of the euro, and the evolution of unit labor costs.

China’s Shanghai Composite Stock Index today reopened after a week-long holiday and dropped to a 6-week low and was closed down -0.44%.  Travel and tourism stocks declined as disappointing travel news during the Golden Week holiday showed weakness in consumer spending.  Government data showed Chinese citizens recorded 826 million domestic trips over the eight-day holiday, bringing in 753.4 billion yuan ($103 billion) in revenue, below estimates for nearly 900 million trips generating 782.5 billion yuan in sales.  Property stocks also retreated today on tepid home sales during the Golden Week holiday, a typically strong time of year for home sales.  Chinese new home sales during the eight-day holiday fell -17% from last year, and sales of existing properties fell -8% over the same period. Today’s +4% surge in crude prices sparked a rally in energy stocks that helped the overall market recover from its worst levels.

Foreign investors continue to liquidate their Chinese stock holdings as mainland markets reopened from the Golden Week holiday.  Overseas funds today sold 7.5 billion yuan ($1 billion) worth of onshore shares on a net basis via trading links with Hong Kong, the most since September 25.

Pre-Market U.S. Stock Movers

Airline stocks are under pressure in pre-market trading as most international carriers suspended flights to Israel following the surprise attack by Hamas over the weekend.  United Airlines Holdings (UAL), American Airlines Group (AAL), and Delta Air Lines (DAL) are down by more than -2%. 

Cruise line operators are moving lower in pre-market trading as travel stocks take a hit on the conflict in the Middle East.  Carnival (CCL), Norwegian Cruise Line Holdings (NCLH), and Royal Caribbean Cruises Ltd (RCL) are down more than -1%. 

Technology stocks with exposure to Israel are falling in pre-market trading following the surprise attack by Hamas on Israel over the weekend.  Applied Materials (AMAT), Check Point Software Technologies (CHKP), Fortinet (FTNT), Intel (INTC), and Nvidia (NVDA) are down more than -1%. 

Datadog (DDOG) tumbled more than -4% in pre-market trading after Bank of America downgraded the stock to neutral from buy.

Energy stocks and energy service companies are climbing in pre-market trading, with the price of WTI crude up more than +3%.  As a result, ConocoPhillips (COP), Chevron (CVX), Devon Energy (DVN), Diamondback Energy (FANG), Marathon Oil (MRO), Occidental Petroleum (OXY), and Valero Energy (VLO) are up more than +2%.   

Defense stocks are gaining in pre-market trading after the surprise attack by Hamas on Israel over the weekend.  Lockheed Martin (LMT), RTX Corp (RTX), Northrop Grumman (NOC), and L3Harris Technologies (LHX) are up more than +3%. 

Lennox International (LII) is up more than +1% in pre-market trading after Goldman Sachs double-upgraded the stock to buy from sell. 

Oracle (ORCL) rose more than +1% in pre-market trading after Evercore ISI upgraded the stock to outperform from in line. 

Earnings Reports (10/9/2023)

Applied Digital Corp (APLD), Waldencast plc (WALD).

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